I have heard that you can figure how much home you can afford my multiplying your annual income by 3, so if you make 30k a year, you could afford a 90k home. Is this based on pre-tax or post tax income?
2007-11-01 06:10:03 · 9 answers · asked by love 6 in Business & Finance ➔ Renting & Real Estate
The general rule is that you can afford a mortgage between 2x and 3x your annual income (gross). So with 30K a year your mortgage should be between 60k and 90k. If you put 100k down, you could buy a house between 160k and 190k (I know with an annual income of 30k you don't have 100k laying around for a down payment).
More specifically, banks used to strictly apply the 28/36 rule. This was no more than 28% of your gross income (by month) goes to your housing payment that included PITI (principal, interest, taxes and insurance). The 36 portion of the rule was that all monthly debt payments had to fit within 36% of your gross income.
That is another guideline though. The real test is to figure out what 28% of your gross income is (per month) and start saving the difference between your current rent payment and that figure. This let's you try it out without risking your credit rating and a foreclosure. If it works well for 6 months then you can be pretty sure it's affordable and you have 6 months of savings to use on something for the house!!
good luck!
2007-11-01 08:12:19 · answer #1 · answered by Rush is a band 7 · 1⤊ 0⤋
It is based on Gross Income (which is pre-tax). The 3 times rule is a very general rule of thumb. It would complicate the formula if you used Net Income, as your taxes are going to be reduced by the mortgage deduction depending on the interest rate and amount of your loan in relation to all the things you're eligible to deduct.
Remember, you can afford to buy more than you can to rent because of that mortgage deduction. However, you'll need to also remember that you, not the landlord, will become responsible for all repairs.
2007-11-01 06:11:51 · answer #2 · answered by Zeltar 6 · 0⤊ 0⤋
A better way to calculate this is by using your monthly gross salary. Your monthly mortgage affordability should be no greater than 50% of your total monthly gross income (50% is quite high, so depending on your other debt, other taxes in the state you live in, etc, you may want to stick to something closer to 30%).
Then when you determine how much mortgage you can afford, use an internet mortgage calculator to determine how much house you can afford, which will mostly depend on what is the current interest rate out there.
Good luck!
2007-11-01 06:21:23 · answer #3 · answered by jemt113 2 · 0⤊ 0⤋
For $1000/mo which includes taxes, insurance, etc, at 6.5% 30 year fixed, about $130k, this was based on credit scores of 590 and 690. Call a lender and get prequalified, because the prequal may also include stipulations such as maybe you have a few minor bills on your credit that need to be paid off and removed from your credit first. Every situation is different. Good luck.
2016-04-11 08:40:22 · answer #4 · answered by Anonymous · 0⤊ 0⤋
Depends on who you ask, of course. A real Estate Agent works on COMMISSION so wants you to spend even more than you actually can afford! You need to do what's best for you and allow 1/3 of your take home pay to be allocated for paying your rent or mortgage. Good Luck!
2007-11-01 06:14:22 · answer #5 · answered by d s 1 · 0⤊ 0⤋
It depends on your debts as wells as your income. Some Realtors web sites have a thing that will calculate how much house you can afford.
2007-11-01 06:13:55 · answer #6 · answered by applecrisp 6 · 0⤊ 0⤋
1. if you are buying, I'd get a fixed 30yr rate. No adjustable, no low rate teasers (if they are still around).
2. Your lender will tell you what you could afford by pre-qualifiing you for a home loan.
Lenders who typically have the best rates, despite what their stock is doing right now.
Countrywide (nations largest home loan lender)
http://www.countrywide.com/default.aspx
2007-11-01 07:11:32 · answer #7 · answered by Net Advisor™ 7 · 0⤊ 0⤋
I'm not sure if that equation is correct. I mean it might be in theory but in reality, no way. Between my husband and I we make about $60,000 a year. We bought our house for $119,000 and let me tell you, there is no way that we could have afforded MORE house! You have to think that you have to pay for the mortgage, insurance, taxes, repairs, upkeep.... it all adds up.
2007-11-01 06:14:15 · answer #8 · answered by GMC1003 3 · 1⤊ 1⤋
Gross before tax which is why the sub-prime market is in such a mess as they were lendin 6x and more which nobody can afford..
2007-11-01 06:14:10 · answer #9 · answered by Anonymous · 0⤊ 0⤋